Let us, for just a moment, consider the traditional ye olde focus group. In the focus group of yore, you'd show participants a product or ad, have them engage with it, and ask what they felt, if there was something that would make it better, and what that would be. Then you'd go and build or adjust a product based on their response. But since its beginnings in the heady, behavioral science–fueled decades past, focus group research has had a fundamental problem at its core.

"The problem with traditional marketing is that, fundamentally, people don't know what they want," says Patrick Renvoise, chief neuromarketing officer and cofounder of Salesbrain, a neuromarketing firm. "If you ask them what they want, they may give you an answer, but since they don't know, that answer won't be valid."

"In a packaging study, for instance, you have people look at packaging and ask them a bunch of questions, but that's not how a decision is made in the grocery store," adds Jake Stauch, founder of Neurospire, a neuromarketing start-up. "You see packaging and you're drawn to it for reasons you don't understand, reasons that happen at a subconscious level."

The human mind, it would seem, is a complex thing—filled with contradictory desires and a steaming mess of feelings not suited to the simple cleanliness of a predictable business transaction. It's an unpredictable black box. Enter neuromarketing.

Dueling Systems

Neuromarketing seeks to quantify, explain, and exploit the unseen subconscious level. Much of the theoretical framework animating the field is the idea that there are competing cognitive systems at play in decision-making: one that makes intuitive, mood-based, emotional decisions (often referred to as system 1), and a second (system 2) that makes more careful, planned rationally based decisions. Much of this thinking rests on the work of Daniel Kahneman, a psychologist working in the field of behavioral economics. Kahneman, who won the Nobel Prize in 2002 for economics, believes that system 1 plays a larger role in purchasing decisions than system 2.

An example: Neurospire was asked by a "high-power muscle car brand" to conduct a study on a commercial that highlighted the brand's fuel efficiency and low emissions. The study looked at two sets of subjects, those who owned a car from the brand and those who did not. It showed them the ad and took metrics in real time. For subjects who did own a car from the brand, contrary to what one might expect, there was an adverse response to the ad.

"It seems to water down the brand and maybe the masculinity or the power associated with the car," Stauch says. "That's an interesting insight that wouldn't come out in a focus group. People wouldn't say, 'I want a gas guzzler. I want a car that's bad for the environment.'"

So the brand, in light of that, might not choose to highlight fuel efficiency and emissions if it is trying to get pre-existing owners to buy back into the brand with a newer model.

The system 1/system 2 model, it should be noted, though, is a broad way of thinking about decision-making, not an ironclad explanation.

"We all make decisions based on nondeliberative, nonrational factors," says Dr. Russ Poldrack, professor of neuroscience and psychology at the University of Texas at Austin. "People want a label."

The above model is the first cut, not the final story, as it is "so oversimplified," Dr. Poldrack says. He explains that there are several mechanisms at play, such as habitual actions, along with emotional responses.

The Pepsi Challenge

A perfect example of how these mechanisms play out and against each other took shape in a 2004 study that is largely responsible for the boom in neuromarketing. The study, titled "Neural Correlates of Behavioral Preference for Culturally Familiar Drinks," appeared in the journal Neuron and was prepared by Read Montague and his team at Baylor College of Medicine. The team conducted a taste testing between Coca-Cola and Pepsi—much like the "Pepsi Challenge" Pepsi has run since the 1970s—but subjected participants to a functional magnetic resonance imaging (fMRI) evaluation to measure brain activity as they did so. Coca-Cola and Pepsi, the paper says, "are nearly identical in chemical composition, yet humans routinely display strong subjective preferences for one or the other."

The team examined two sets of subjects: one that was given Coke and Pepsi without knowing which they were drinking, and a second that had been told which brand they were drinking.

What the researchers found was that in the blind trial, about half of the respondents said they preferred Pepsi—which you might expect given that they're chemically similar. Generally speaking, the preference each respondent gave was correlated with increased activity in the ventromedial prefrontal cortex—an area of the brain situated just between the eyes and associated with positive value judgments. So if you said you preferred Coke, this area would light up more when you were drinking it as opposed to Pepsi. According to recent findings, the ventromedial prefrontal cortex section seems to play some role in signaling when something is thought of as worth taking a risk on.

"The more you like something, the more activity in that area turns up," Dr. Poldrack explains. "If we have you look at gambles where you could win some amount versus lose another...that brain system turns up the more you could win and down the more you could lose."

In the Baylor study, subjects who had been told they were drinking Coke or Pepsi preferred the Coke three-fourths of the time, as opposed to half of the time for those who weren't aware of it. This cut Pepsi preference in half. The areas that saw increased brain activity also shifted in these cases. More action was seen in the lateral prefrontal cortex, often associated with high-level cognitive powers (such as planning), and the hippocampus, which is associated with memory.

The team concluded that what was happening was subjects who knew they were drinking Coke were drawing on memories and other impressions when forming their opinions. This might suggest that the perpetual market share that Coke enjoys over Pepsi (even Diet Coke sold better than regular Pepsi in 2011 according to Dayton Business Journal) has more to do with the ephemeral characteristics that surround the brand of Coca-Cola than the intrinsic taste superiority of the product.

The implications for marketing were obvious. If you were Pepsi, for instance, it would seem your market share problem is one of brand perception, not formula. Knowing this, you might focus on brand and forgo any new formula experiments.